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Same investment advice will not be good for everyone

Gulf News

Someone said to me the other day that they had been reading my articles in Gulf News for almost three years and yet they could not remember any specific fund that I had recommended in that time.

Really, I said, that's probably because I have never done so. Why not? asked my questioner, I read other newspapers where people are always giving investment tips. Quite correct, but you see I am neither a stock or share tipster nor am I a fund manager or analyst.

Yes, I get a lot of information sent to me about funds from various investment groups and I personally may invest as a result. But what I think would be a good investment for me may not be a good investment for majority of the population of this region.

Invest with an aim in mind I regard myself as a financial planner, which means that I listen to what my clients want to achieve and when they want to achieve it. How much risk they can or are prepared to take and also in which currency.

Let me give you an example, someone single in their twenties or thirties can, on average, afford to take more risk with their investments than a fifty-year-old married client with children at school, because they do not have so much time left to make up any losses should the investment fail.

Consequently, while I might advise the younger client to invest in Eastern Europe or China at the moment, a guaranteed or with-profit fund is likely to be better advice for the fifty-year-old. Unless, of course, he has sufficient other assets and can afford and wants to take increased risk in the hope of increased gain.

Similarly, many investments require a minimum amount. If we take some of the hedge funds around at the moment, which are proving both popular and profitable, the minimum investment can be very high. One of the best performing funds, over the last three years has a minimum entry level of $500,000.

This fund has made its investors money in every year since its inception in 1994, yes including the last three years. However, how many of you reading this article can either afford or want to invest that much. So what is the point of me recommending it in an article where the majority of the population can only dream about having that sort of money, let alone investing it.

I believe, also, that in financial planning terms, people should save in the currency for which they will need the investment. For instance, if the goal is for retirement in Europe, it would be best to place your monies in a euro-denominated investment, to avoid any exchange risk.

That does not mean that I advise clients to invest in only one currency. If the same client retiring to Europe wanted his or her children to attend University in the United States, then a dollar-denominated investment might be the best for that objective.

I am not against investing in different currencies but I believe the reason for each investment should be determined as well as the currency to meet the goal. The idea being to give clients the best chance of achieving it by taking away as much risk as possible.

Admittedly, it is possible to make a profit on currency speculation, but the idea of financial planning is to achieve goals over the medium to long term not try for a quick speculative profit.

However, I am certainly not against making a short-term gain by picking a fund or share if you believe or have information that it will rise, but be careful as to from where the information comes. I have lost track of where the latest base for share ramping is at the moment.

Ramping is advising people to buy a little known share of a company which:
a) is just going to announce that they have discovered a cure for cancer;
b) has discovered a gold mine in Australia or Mexico;
c) is about to announce record profits;
d) will shortly make a major announcement that will send their shares skywards but which you will not be able to check.

Over the last 20 years, I have had telephone calls from people in Luxembourg, Dublin, Japan, Africa and many other countries all promising me untold riches if I invest in a share now through them because one of the above will happen in the next few weeks.

It all sounds very tempting and unfortunately, very believable, because you will have been specially chosen as a wise investor. How they get the telephone numbers I do not know but just think what profit there is in it for the caller if he or she can afford to make a long telephone call to you (and hundreds if not thousands of others) from another country.

Believe me the only people who will make money in this scheme are the people giving you the information. If they can persuade enough people to buy a lightly traded share that they have purchased for little or nothing, the share will rise and they will sell, thus making a considerable profit.

Unfortunately, when you want to sell you will find the shares are worthless or untradable as there will be no buyers.

Do not be fooled, invest your money in a tried and tested investment or put your trust in a person or company that you know and can go to in an emergency.

The author is the Head of Retirement and Relocation, Towry Law International, Dubai.